Tesla Arranges to Repay U.S. Loans Five Years Early

By Alan Ohnsman -
Mar 8, 2013

Tesla Motors Inc. (TSLA), which received
$465 million in U.S. Energy Department loans to develop and
build electric cars, will repay the funds five years ahead of
schedule in a plan approved by the government.

The carmaker said in its annual report yesterday that the
department approved amended terms of the loan agreements that
enable it to complete repayment by December 2017. Starting in
2015, the Palo Alto, California-based company will make
accelerated payments from excess free cash flow, Chief Financial
Officer Deepak Ahuja said in a telephone interview.

“Any remaining balance that’s there at the end of 2017
we’ll pay off as a balloon payment,” Ahuja said yesterday.

The maker of battery-powered Model S sedans, led by
billionaire Elon Musk, has a goal of becoming profitable this
quarter, with deliveries of the vehicle forecast to rise to a
record 20,000 units in 2013. Production snags in last year’s
second half boosted operating expenses and triggered a wider
fourth-quarter loss for Tesla than analysts anticipated.

The original terms required repayment of the loans by 2022,
10 years after the funds were drawn down. Tesla said on Sept. 25
that it was working with the Energy Department on a modified
repayment schedule. Amended terms of the loan agreements were
registered on Dec. 20 and March 1, the company said yesterday.

Tesla rose 0.6 percent to $38.47 at the close in New York.
The stock has advanced 14 percent this year, compared with an
increase of 9.1 percent for the Russell 1000 Index.

Loan Agreement

Musk said in a Bloomberg Television interview with Betty Liu last month that Tesla would repay the money in five years.

Warrants Tesla issued to the Energy Department as part of
the loan agreements vest in 2018 if the loans aren’t paid off.
They would enable the government to buy more than 3 million
Tesla shares at a discount.

“The value of those warrants is very substantial,” Ahuja
said. “The terms of the original loan had a very good incentive
for us to pay off the loan early.”

The loan amendment “formalizes that and avoids the vesting
of that warrant,” he said.

Under the agreement, funds for the early payments will be
generated from cash above a $200 million threshold “over our
reservations balance,” Ahuja said.

Emission Credits

Tesla also said in the filing yesterday that sales of so-
called Zero-Emission Vehicle credits from its electric cars
jumped to $40.5 million last year from $2.7 million in 2011.

California’s environmental rules require large automakers
to sell a certain number of electric and plug-in vehicles in the
state annually. Those that fall short can buy such credits from
companies such as Tesla that generate more than they need.

Ahuja declined to identify which companies bought Tesla
credits, and the carmaker didn’t disclose details in its annual
report. Tesla reported sales last year of 2,650 Model S sedans,
which sell for about $60,000 to more than $100,000, before a
$7,500 U.S. tax credit.

The company said in the filing that production of its
second all-electric vehicle, the Model X sport-utility vehicle,
starts in late 2014 at the Fremont, California, plant set up
using the federal loan funds. Tesla said it intends to build as
many as 15,000 of the battery-powered crossovers annually.